Bangladesh Economic Profile

Even in the face of the challenges posed by the COVID-19 pandemic in 2020, Bangladesh registered a positive growth rate outperforming many developing economies, a rare achievement compared to international standards. As one of the world’s fastest growing economies, Bangladesh is set to become the world’s 24th largest economy within the next 12 years as articulated by BBC. According to “World Economic League Table – 2023” projected by the Center for Economics and Business Research (CEBR), Bangladesh’s GDP in 2037 will be $1628 billion (more than one and a half trillion), which means Bangladesh will be the 20th largest economy in 2037. UK-based accounting firm Brand Finance released the Global Soft Power Index 2023 report – which said the brand value of Bangladesh increased Page 4 of 30 by 37% from $371 billion in 2022 to $508 billion in 2023 (the second highest brand value in South Asia, right after India, which is more than twice that of Pakistan and 10 times that of Sri Lanka.)

As the country continues to transition from a frontier market into an emerging market, various financial institutions acknowledge the nation’s potential by including it in the “Next Eleven” economies. It is a member of the South Asian Free Trade Area (SAFTA) and the World Trade Organization (WTO).

Historical Background and Economic Reforms

The economic history of Bangladesh dates back to the period following the partition of India in 1947. During the time, East Pakistan (now Bangladesh) contributed significantly to Pakistan’s exports, accounting for 50% to 70% of the total. However, the country’s economic trajectory changed drastically after gaining independence from Pakistan in 1971. The late 1970s marked the beginning of economic reforms, which included promoting free markets and attracting foreign direct investment (FDI). By the 1990s, the ready-made garments (RMG) industry had emerged as a major driver of economic growth. Bangladesh’s industrialization received a significant boost post-independence. The introduction of labor reforms and the establishment of new industries played a crucial role in this transformation. During 80’s and 90’s, the expansion of rural network from 3,000 km to 15,500 km greatly improved connectivity and boosted economic activities in rural areas. The establishment of the Chittagong Stock Exchange in the 1990s further supported economic growth by providing a platform for raising capital.

Current Economic Landscape

The Bangladeshi economy has expanded steadily over the past decade, posting an average yearly growth of 6-7% between 2014 and 2023. This consistent growth propelled Bangladesh into the spotlight, and it has since become a significant player in global trade. The economy has experienced a sectoral transformation, moving from an agriculture dominated structure to one reliant on industry and services. The economy is characterized by a vibrant private sector, which contributes 80% of the GDP, and a growing digital economy.

Sector-wise Distribution to GDP

Agriculture

Agriculture has historically been the backbone of Bangladesh’s economy. Although its contribution to GDP has decreased to 11.5% in the fiscal year 2021-2022, it remains a vital sector, employing around 40.6% of the labor force. The total production target of food grains in FY2021-22 was 46.58 million metric tons. Government subsidies and support have helped maintain self-sufficiency in food production. The sector’s growth rate, however, has seen a slight decline, reducing to 2.20% from 3.17% in the previous fiscal year.

Industry

The industrial sector has become the key engine of growth in Bangladesh, contributing 38% to GDP at present. The ready-made garments (RMG) industry is a cornerstone of this sector, making Bangladesh the second-largest textile exporter globally. The country is home to the highest number of green garment factories with LEED certification, reflecting a commitment to sustainable industrial practices. Other significant industries include pharmaceuticals, ceramics, and steel, with the pharmaceutical industry experiencing an average annual growth rate of 12%. The manufacturing industry alone accounted for 24.45% of GDP in FY2021-22, showcasing its critical role in economic development

Services

The service sector is the largest contributor to Bangladesh’s GDP, accounting for around 51% of the GDP and provides 38% of the total jobs in the country. The sector is increasingly becoming an important avenue for value, knowledge and technology-led economic growth. Key sub-sectors include wholesale and retail trade, transport, financial services, including the banking sector, telecommunication and IT, repair of motor vehicles, storage, accommodation, and food services etc. The sector experienced a growth rate of 6.3% in FY2021-22, highlighting its critical role in the economy. A decade ago, this industry employed a modest 50,000 individuals, but recent years have seen a remarkable transformation with the government successfully creating two million IT jobs, and they aim to add another one million to the IT workforce by 2025. The growth of the service sector is indicative of the broader economic transformation, shifting from an agriculture-based economy to one dominated by services and industry.

International Trade and Investment

Bangladesh has demonstrated a remarkable transition from an agriculture-dependent economy to one driven by the ready-made garment (RMG) industry. The country is now a diverse exporter with nearly US$60 billion in global exports. Its export portfolio includes leather and footwear, plastics, light engineering, pharmaceuticals and medical equipment, agriculture and agri-businesses, jute, leather, electronics, IT, automobiles, shipbuilding, ceramics etc.

Table: Export-Import of Bangladesh

Bangladesh has pursued an export-oriented industrialization strategy, significantly boosting trade flows. The country has enjoyed a trade surplus in recent years, driven by robust export performance. The country’s exports grew 6.67% year-on-year and reached $55.55 billion in FY2023, riding on the extraordinary performance of the apparel sector. In FY2023, export earnings crossed the milestone of $50 billion for the second consecutive year. The earnings were $52.08 billion a year ago (a 34.40% increase from the previous year). The RMG sector alone experienced a 35.47% growth in exports. It was reported that the share of high-value apparel items is growing, which is working as a driving force. The export of home textiles, leather products, agricultural products, engineering products, and pharmaceuticals also saw substantial increases. What is also promising is that exports to new markets, such as Japan, Korea, India and non-traditional ones, are also rising.

Today, Bangladesh stands as the world’s second-largest exporter of ready-made garments (RMG), but its economic landscape extends far beyond this achievement. RMG constitutes 80% of the total export of the country. Leather goods hold the position as the country’s second-largest export earner after RMG, attracting substantial investment in recent years due to the availability of competitive labor. Bangladesh commands 3% of the global leather and leather products market, with nearly 60% of its annual output destined for export.

Moreover, Bangladesh is the 3rd largest producer of rice and vegetables and ranks 4th in freshwater fish production. The country is also emerging as a significant player in pharmaceutical exports, meeting almost 98% of local demand and exporting drugs to around 160 countries. Additionally, it has gained prominence in the bicycle manufacturing industry, with the European Union importing approximately 18 million bicycles annually from Bangladesh, according to Eurostat. Furthermore, digital transformation is now underway in the country and there are 177 million mobile users. Internet user rate has increased by 70% in the last 10 years. The size of the digital economy grew from $1.7 billion in 2019 to $3.5 billion in 2022.

The government is also creating an enabling environment for the economy by tripling its spending in the last decade. Bangladesh is now the 9th largest mobile market in the world. Bikash is the world’s leading mobile financial service provider. With more than 650,000 freelancers, Bangladesh is the world’s 2nd largest provider of online labour (15% of the world’s total freelancers). Bangladesh’s success as an exporter is rooted in its thriving digital infrastructure that is propelling a whole new generation of small medium businesses into existence and profitability. According to the Huawei Global Connectivity Index 2019, Bangladesh is one of the four fastest growing digital economies and is already the 9th highest internet user in the world.

The plastics industry is another key sector contributing significantly to the economy, boasting a market size of US$2.9 billion and experiencing a 20% year-on-year growth between 2017 and 2018. There are about 5,000 plastics enterprises employing roughly 1.2 million people, producing a wide range of products for both domestic and international markets. Overall, Bangladesh’s export trajectory is on an upward trend, with exports reaching a record high of US$5.7 billion in January 2024, marking an 11% year-on-year increase.

Trade in Goods & Services

Since the beginning of this decade, Bangladesh’s garment exports have accounted for more than three-quarters of the country’s annual income. Beyond the RMG exports, most other notable export sectors, including leather, jute, home textiles, agricultural products, and engineering products, are thriving.

Service exports are rapidly growing. Transportation, construction and IT industries are the top performers in this industry segment.

Foreign Direct Investment

According to the UNCTAD’s World Investment Report 2023, FDI inflows to Bangladesh increased by 20.2% to USD 3.48 billion in 2022 (compared to USD 2.89 billion in 2021). In the same year, the total stock of FDI was estimated at USD 21.1 billion, representing only 4.6% of the country’s GDP. Figures from the Central Bank show that, during the fiscal year 2022-23, net FDI inflows totaled USD 3.25 billion, marking a decrease of USD 189.95 million or 5.5% compared to the fiscal year 2021-22 and an increase of 29.6% compared to the fiscal year 2020-21.

The government is working to increase investment, create employment and alleviate poverty with the aim of making the country a developed and smart Bangladesh. Necessary physical and social infrastructure is rapidly developing to keep pace with the plan. The extraordinary growth in several of its sectors in recent years has been made possible because of strong private sector improvement, partly thanks to the spread of digitalization, domestic income growth and increased household income.

Significant foreign investment has entered the country’s telecommunications industry, attracted by a skilled workforce competent in information and communication technology. Over the past few years, China has heavily invested in Bangladesh’s economy as its strategic location provides an ease of trade accessibility via the Indian Ocean.

The country continues to receive investments in various megaprojects, including the Padma Bridge, Dhaka Metro, and Matarbari Port. The positive growth in FDI highlights Bangladesh’s favorable investment climate and the confidence of foreign investors in its economic prospects.

Some of the largest multinational corporations have shown an early investment in Bangladesh has paid off. Take, for example, Telenor, the Norwegian telecommunications giant with a majority share in its Bangladesh partner Grameenphone, Anglo-Dutch consumer product megalith Unilever and Standard Chartered Bank, all of which have been operating in Bangladesh for decades. Japan’s SoftBank recently acquired a 20% stake in bKash, a mobile financial services company that became Bangladesh’s first “unicorn” (a private company or start-up with a valuation of more than US$1 billion), to promote financial inclusion by building a digital financial ecosystem in Bangladesh. ULKASEMI, one of top semiconductor companies, founded in Bangladesh in 2007. Headquartered in Cupertino, Silicon Valley, ULKASEMI now has a team of more than 350 engineers around the globe with operations in Dhaka, Bangladesh among others.

Promising Economy and A destination Ripe for Investment

Considered one of the most resilient and promising economies in the world, with a young population and major economic potential, the World Bank re-classified Bangladesh as a lower-middle-income country. Today, the nation is powered by a vision to become a developed nation by 2041

As Bangladesh moves closer to shedding its “developing” status, a key play in its future lies in the investment appeal of its young, dynamic and rapidly growing workforce. With a backdrop of a youthful population of about 55 million – more than 60% of its population is under the age of 30 – Bangladesh offers a ready-made labour pool for industries such as manufacturing, IT and service sectors. This demographic dividend, combined with a rising middle class with increasing purchasing power, offers huge potential for market growth and investment.

Paving the way for foreign interest, Bangladesh has brought in several business-friendly policies to promote foreign direct investment. These include tax reforms, duty-free import of machinery, and repatriation of capital and profits. The establishment of Export Processing Zones and Special Economic Zones has offered investors a multitude of benefits such as tax exemptions and customs duty holidays. Readymade garments lead the export frontier of the economy, while other products such as pharmaceuticals, light engineering and electronics, and IT are gaining traction.

Major Export Destinations

The top five export destinations for Bangladeshi goods in FY2022-23 included the United States (20%), Germany (9.27%), the United Kingdom (6.08%), Spain (5.21%) and France. The diversity of export markets underscores Bangladesh’s integration into the global economy and its reliance on a broad customer base to sustain economic growth.

Remittances and Foreign Exchange Reserves

Remittances from the large Bangladeshi diaspora play a vital role in the economy of Bangladesh, providing substantial foreign exchange reserves. In FY2022-23, remittance inflows increased slightly by 2.75% to USD 21.61 billion from USD 21.03 billion in the previous fiscal year. As of June FY2023-24, Bangladesh’s foreign currency reserves stood at USD 31.20 billion, sufficient to cover over 3 months of import expenses.

Infrastructure Development

Infrastructure development has been a key focus for the government of Bangladesh, aimed at stimulating economic activity and enhancing connectivity. Bangladesh’s infrastructure is also set for major enhancements, as it sets up new airports, long bridges, sea-ports, underwater tunnel, nuclear power plant, expressways and many more. The completion of Padma Bridge in 2022 is expected to boost GDP by 1.23%, facilitating better trade and transportation. Additionally, nuclear power plants (such as the Rooppur Nuclear Powerplant with 2400 MW capacity and other plants will help ensure 40,000 MW of electricity generation by 2030), and deep-sea ports (including the forthcoming Matarbari Deep Sea Port, which is expected to boost GDP by 1.14%) are expected to further enhance infrastructure, reduce transportation costs, and improve logistics, thereby contributing to fuel economic growth. As the gateway to a market of four billion people in the region, better geographical connectivity cannot be underestimated.

Human Development and Poverty Reduction

Bangladesh has made significant strides in human development and poverty reduction. The poverty rate has dropped from 44.2% in 1991 to 12.9% in 2021. More than 15 million people have moved out of poverty since 1992, supported by improvements in the human development index, literacy, life expectancy, and per capita food consumption. The country’s primary school enrollment is nearly universal, and substantial progress has been made in maternal and child health. These achievements have contributed to a higher
quality of life and greater economic stability.

Bangladesh’s healthcare system is growing at a CAGR of 10.3% since 2010, while the size of the healthcare industry has doubled in the past eight years. Its nascent home-grown consumer market is seeing growth; household wealth is on the rise, with per capita national income reaching US$2,824 last year, up from US$860 in 2011.

The World Bank has acknowledged Bangladesh’s economic progress, stating that “the country’s transformation over the next 50 years is one of the great development stories.” Investments in human capital, macroeconomic stability, and climate change adaptation have been key drivers of this success. The government’s focus on social programs, such as providing free primary education and healthcare, has played a significant role in improving living standards and reducing poverty.

Most importantly, Bangladesh’s young and healthy population bodes well for continuing diversity of its sectors. It has a population of more than 171 million, about 28% of which is between the ages of 15 and 29. It’s not only young and dynamic but, thanks to a muchimproved healthcare and pharma industry, its people are staying healthier and living longer lives, with reduced infectious disease, and infant and maternal mortality, according to the World Bank

With continued investments in infrastructure, human capital, and climate resilience, Bangladesh is well-positioned to become a high-income country by 2041. The country’s journey from one of the poorest nations to a rapidly growing economy is a testament to its resilience and potential for future prosperity.

Bangladesh’s economy has demonstrated remarkable resilience and growth, transforming its economy from primarily agrarian economy to becoming a global industrial powerhouse, halving poverty and significantly boosting gross domestic product. Market-oriented policies, privatization, trade liberalization and strategic foreign investments were key to propelling Bangladesh’s exports and industrial growth.

As Bangladesh aims to diversify its economy and climb up the value chain, Middle East & North Africa (MENA) emerges as the next frontier for the exports of Bangladeshi goods and services particularly textiles and apparels, benefiting from similar growth opportunities and international support for sustainable and inclusive industrialization.